News June 2014 FRC’s work to encourage clear and concise reporting: FRC publishes Guidance on the Strategic Report

FRC’s work to encourage clear and concise reporting: FRC publishes Guidance on the Strategic Report

09 June 2014

PN 35/14

The Financial Reporting Council (FRC) today announces a programme of work to promote clear and concise reporting from which investors can, with justifiable confidence, draw conclusions about a company’s performance, position and prospects.
The clear and concise programme comprises a series of initiatives to be delivered during 2014 and beyond. As a first step the FRC has today published Guidance on the Strategic Report (PDF); the new reporting requirement designed to give investors an insight into the way the business is run and its strategic direction.

Read the Feedback Statement: Guidance on the Strategic Report (PDF).
Further initiatives include:

  • Publishing a review of progress towards clear and concise reporting in the 2014 reporting cycle, including, examples of practical application.

  • Publishing Financial Reporting Lab case studies setting out investor feedback on how well companies have addressed clarity and conciseness.

  • Reporting by the Corporate Reporting Review team on reports where it commonly observes “clutter”, contrary to the objectives of clear and concise reporting.

Stephen Haddrill, FRC Chief Executive said:

“In 2012 the FRC introduced the requirement that corporate reports of listed companies should be ‘fair, balanced and understandable’. Since then the FRC has also introduced a number of measures including changes to auditor and audit committee reports. There have also been legislative changes, notably the introduction of the strategic report.
However, investors still express concern that the key messages about the business are buried in too much verbiage of little value or are obscured by boilerplate. The programme we launch today is designed to tackle this persistent problem and promote clear and concise reporting. We will be seeking the views of stakeholders through roundtable discussions.”

The Guidance on the Strategic Report gives an overview of the various components of an annual report and considers where information should best be placed. It aims to help companies think innovatively about communication. The Guidance also encourages companies to focus on ensuring disclosures are material, as a key step towards concise reporting.

Commenting on the publication of the Guidance, Melanie McLaren, Executive Director Codes & Standards, said:

“The new legal requirements for the strategic report have already made a positive impact, with a number of companies focussing on clarity of communication rather than a compliance-driven checklist approach to reporting.  We hope to encourage that trend.
We have worked closely with the Department of Business, Innovation and Skills which has clarified a number of legal points related to the regulations. These clarifications are published alongside this Guidance. 
We have also kept an eye on developments such as the EU Directive on Non-Financial Reporting and the work of the International Integrated Reporting Council.  Reports that follow the Guidance should result in reporting that is consistent with the International <IR> Framework.”

Notes to editors:

  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

  1. The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the ‘Regulations’) have effect in respect of financial years ending on or after 30th September 2013.

  1. The Department for Business, Innovation and Skills (BIS) asked the FRC to prepare non-mandatory guidance on the application of the strategic report requirements in the Regulations.  The guidance and the letter from the Department of Innovation and Skills providing clarification on the Regulations can be accessed at Narrative Reporting

  1. In developing the Guidance on the Strategic Report, the FRC is encouraged by other developments such as the on-going work of the International Accounting Standards Board as part of its Disclosure Initiative and the International Integrated Reporting Council’s Integrated Reporting Framework. We believe that these organisations, share the FRC’s vision to improve the quality of corporate reporting.